Interest rates in New Zealand will remain low

Governor of the Reserve Bank of New Zealand, Graeme Wheeler, confirmed that interest rates would remain low for the “foreseeable future”. He was speaking at a business lunch in Queenstown on Friday 2 June.

“I don’t think we will see high inflation in the global economy for a long time,” he said, noting that the Reserve Bank had cut interest rates seven times since mid-2015.

 Interest rates in New Zealand stand at an historic low. While mortgage interest rates are about 2.2 per cent the official cash rate is 1.75 per cent. This is high when compared to Europe, which is about 0.5 per cent or less, Wheeler said.

 After remaining at low levels in 2016 and 2017, short-term interest rates are assumed to gradually rise to 4.2% by June 2020, still below their assumed long-run level of 4.5%, as monetary policy is tightened in response to higher inflation, according to forecasts from the New Zealand Treasury.

 Wheeler also said that high debt-to-income ratios were still “prevalent”, especially in relation to the housing market. Latest figures showed that stricter loan-to-value (LTV) rules were working because in Auckland, one year ago 40% of transactions were investors; now that figure stands at 36%.

 Although the Auckland housing market might be cooling, he said the housing market in Queenstown was still strong, and figures suggest that it would remain so.

 He also pointed out that New Zealand ranks very high on international standards. It ranks number one, (or the least corrupt country in the world) along with Denmark, in the Corruption Perceptions Index 2016, by Transparency International; it ranks number one in the World Bank’s survey of the ease of doing business and it is the top ranked country in terms of freedom from violence, terrorism and disruption of the economy.

 Wheeler, who leaves his post on September 26 this year, after serving one five-year term, said he was pleased to be leaving at a time when the economy is doing well.